[t]he paternalists’ rhetorical purpose . . . is to get us to think of paternalism as all one thing, a nice continuous spectrum from policies that restrict choice slightly to those that restrict choice substantially. As they slide along this spectrum, they fail (I think deliberately) to draw attention to when they’ve crossed the line from libertarian (non-coercive) to unlibertarian (coercive). . . .
If paternalism can be coercive (as with a sin tax) or non-coercive (as with an employers pension plan rules), it is crucial to distinguish between these two types; acceptance of one form of paternalism does not imply acceptance of the other. Lest it seem I’m drawing a distinction without a difference, we should note that private non-coercive paternalism can be avoided much more easily than the public coercive variety. You can choose whether to take a job with a restrictive benefits package; you cannot choose whether to contribute to Social Security. You can choose whether to join AA or Weight Watchers; you cannot opt out of a sin tax.
Moreover, what "libertarian paternalists" really seem to want is for government to require such things as restrictive benefits packages (e.g., automatic opt-in to retirement plans).
Roll over, Adam Smith. You said that we can trust the self-interested actions of individuals to benefit others. You said that an "invisible hand" guides markets, meaning that they did not require government control. But some of your economist descendants now claim that the self-interested actions of individuals do not even benefit themselves. Instead, government should intervene to make sure that individual choice serves to promote subjective well-being.
Alan Krueger and Daniel Kahneman hail the progress that has been made in measuring subjective well-being, or happiness. They say that researchers in this field, which is on the boundary between economics and psychology, have developed reliable methods to measure how well a person is feeling. This in turn enables them to make reliable assessments of how happiness is affected by income (both in absolute terms and relative to that of others), marital status, and how people allocate time among various activities, from socializing (good) to commuting alone (bad). . . .
[T]he reader may have surmised that I am not altogether sympathetic to Krueger and Kahneman. In fact, you may think that the totalitarian examples I have come up with are an unfair distortion of their work. They merely claimed to be "interested in maximizing society's welfare." Hasn't that always been the goal of economists?
Indeed most economists, with the exception of the Austrian school, have seen the economist as an adviser to government. The advice of Adam Smith and David Ricardo was to promote free trade. To this day, I believe that the most reliable advice economists can give on topics such as trade, outsourcing, and immigration, is to point out the broad, long-term and often unappreciated benefits of these activities relative to their narrow, short-term and exaggerated adverse effects.
In the twentieth century, economists refined their analysis of the social benefits of markets. They proved that free markets lead to an optimal allocation of resources. This proof rests on a specific definition of "optimal allocation" and, more importantly, on perfectly competitive markets.
Because some important industries clearly are not perfectly competitive, economists conceded the desirability of regulation of such industries. Then, during and after the Great Depression, economists focused on the need for government to manage the business cycle and in particular to fight unemployment.* Finally, in the 1970's and later, economists discovered many types of market imperfections, notably problems related to information, that could be used to justify government intervention -- see my essay on Hayekians and Stiglitzians.
My point is that -- with the exception of the Austrians -- economists have been going down a slippery slope of interventionism for a long time. Krueger and Kahneman are simply further down that slope.
Here's my take on "libertarian paternalism" and related matters:
A Libertarian Paternalist's Dream World
The Short Answer to Libertarian Paternalism
Second-Guessing, Paternalism, Parentalism, and Choice
Another Thought about Libertarian Paternalism
The Economics of Corporate Fitness Programs
Another Voice Against the New Paternalism